Car deals harder to find this year

DETROIT — For years, Americans shopping for cars were treated to all sorts of deals and incentives, especially at the end of summer.

A typical promotion was to offer employee discounts to everyone. And then there was Cash for Clunkers, part of the federal stimulus program, which paid up to $4,500 for gas guzzlers if the owners bought new cars.

Those days are over.

Deals are becoming more scarce as automakers, newly lean and profitable, hold the line on those profit-eating promotions. In July, they offered $1,000 less in incentives per car than a year earlier, according to Edmunds.com, an auto website.

Meanwhile, no one expects the government to offer a repeat of the Cash for Clunkers program.

“This may be as good as it gets, and get used to it,” said Jeff Schuster, executive director of forecasting for J.D. Power and Associates.

As a result, U.S. auto sales are at a standstill, with potential buyers waiting for more deals but automakers resisting.

Auto manufacturers said this week that sales were an average of 21 percent lower this August than in August 2009, when the clunkers program was in full swing.

August usually sees strong sales as automakers offer deals to clear out the lots for new models. In August 2007, before the recession, automakers sold nearly 1.5 million new cars and trucks.

But this year, many buyers are on the sidelines.

The standoff between buyers and car manufacturers could continue through the rest of the year, said Jesse Toprak, TrueCar’s vice president of industry trends and analysis.

“We really need some sort of catalyst to take us up to a higher level,” he said.

Others say a healthier economy — not incentives — is the only real driver for higher sales.

“Just lowering prices is not going to solve the problem,” said George Pipas, Ford’s top U.S. sales analyst. “The key is an improved consumer outlook.”

Automakers have been vowing to cut back on incentives for years, and this time they mean it.

In the last few years, Detroit automakers — and, to a lesser extent, their foreign rivals — have closed plants, cut tens of thousands of workers and aligned production with demand. Because they’re producing fewer vehicles, they don’t need to offer discounts to clear out excess cars and trucks.

Since 2004, automakers have cut their North American production capacity by 18 plants and 2 million vehicles, Citi Investment Research auto analyst Itay Michaeli said. At the end of July, automakers had a 52-day supply of vehicles to sell, down from 69 days in July 2008, according to J.D. Power and Associates.

Automakers need a certain amount of cushion to ensure that enough cars and trucks are available, but anything above a 60-day supply is generally considered too high.

General Motors Co. and Ford Motor Co. have been profitable this year and stand to make even more money when the market recovers.

Analysts believe that 14 million is a natural level for annual U.S. sales, based on population and other factors. J.D. Power expects sales this year to be around 11.6 million, up from 10.4 million last year.

Before the recession and bankruptcies, auto sales hit about 17 million, but that was partly because of overproduction and generous incentives.

Michaeli said the biggest factor holding back sales is consumers’ fear of layoffs, so he believes that automakers should offer to buy back cars if people lose their jobs.

Hyundai won customers last year by launching a bold program that did just that. The South Korean automaker’s market share is up 38 percent since it began “Hyundai Assurance” in January 2009. That’s proof such programs can work, Michaeli said.

Toprak said the government should guarantee car loans, charging buyers a small premium to cover the cost of any defaults. But so far, there’s been no discussion of such a plan, or of a repeat of the $2.88 billion Cash for Clunkers program.

J.D. Power’s Schuster said eventually cars will wear out and people will have to buy, regardless of the incentives.

But in the meantime, he said, “it takes a while to get off the drug.”

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